Jobless claims, Dollar General — What you need to know in markets on Thursday

After opening higher on Wednesday, stocks sold off throughout the session and closed in the red for the second straight day.

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The Dow, which fell 1%, or 248 points, led the day’s losses. The S&P 500 saw more meager losses of 0.6%, and the Nasdaq lost 0.2%. Meanwhile, yields at the long end of the Treasury curve continue to show signs of life with the 10-year hitting 2.8% on Wednesday.

The biggest loser on the Dow on Wednesday was Boeing (BA), now down about 11% from its recent high as investors continue to sift through the impacts of a potential tightening of trade policies from the Trump administration.

On Thursday, markets will have a lighter economic and earnings calendar to contend with than in the previous two days, with initial jobless claims and a reading on manufacturing activity in the New York Fed’s region serving as economic highlights.

Investors will also continue to sift through the potential implications for economic policy after Larry Kudlow confirmed Wednesday that he would be named President Trump’s next chief economic advisor, taking over the vacancy left when Gary Cohn stepped down last week.

In an appearance on CNBC on Wednesday, Kudlow, who has long been a commentator for the network, said China has “earned a tough response.”

Theranos

On Wednesday, the SEC announced that it charged Theranos, its founder and CEO Elizabeth Holmes, and its former president Ramesh “Sunny” Balwani with, “raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.”

The SEC’s headline called Theranos a massive fraud.

As part of a settlement, Holmes agreed to pay $500,000, forfeit her shares in the blood-testing company that had once been valued at $9 billion, and be barred from serving as an executive or director on the board of a public company for a decade.

Bloomberg notes that this settlement does not specify whether criminal charges against Holmes or the company will be pursued, so the story may not be over. But Wednesday’s announcement was certainly the end of something for Theranos and for the venture capital industry at large.

Elizabeth Holmes, founder and CEO of Theranos, speaks at the Wall Street Journal Digital Live (WSJDLive) conference at the Montage hotel in Laguna Beach, California, October 21, 2015.

VCs have argued that while Theranos is physically located in Silicon Valley it is not a “Silicon Valley” company, but the SEC certainly begged to differ. “The Theranos story is an important lesson for Silicon Valley,” said Jina Choi, director of the SEC’s San Francisco Regional Office. “Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”

To regulators, it appears that the private, venture-based investing culture that flourishes in the Valley may also be one in which founders and their investors are incentivized to overstate successes in order to fully realize the revolution or innovation they promise. Overpromising and underdelivering is a truth in almost any part of American business. But in the SEC’s view, Theranos veered into the territory of lying rather than simply “aiming high.”

“Investors are entitled to nothing less than complete truth and candor from companies and their executives,” said Steven Peikin, co-director of the SEC’s Enforcement Division. “The charges against Theranos, Holmes and Balwani make clear that there is no exemption to from anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.”

In short, the SEC is saying that you cannot lie to investors. You can’t lie to them if you’re a public company or a private company, and you cannot use a promise of world-changing disruption in a specific industry as a reason to lie.

Back in 2014, when Theranos was the subject of the “exuberant media attention” that Peikin references, the tech industry was riding high. Unicorns — or companies valued at more than $1 billion — seemed to be popping up left and right, and there was a belief in some corners that the VC industry had figured out something about business that the public markets could not understand.

Fast forward two-plus years later and many unicorns have gone out of business or faced truly terrible times after going public. Dropbox, for instance, is set to make its public market debut at a valuation below its latest private money raise. Snap (SNAP) has had a rough go since going public, and CEO Evan Spiegel has said he needs to do a better job at communicating with investors now that the company is public. Blue Apron (APRN) had been valued north of $2 billion on the private market, and after a nearly 80% decline since its public market debut, the company’s market cap stands at around $420 million.

And all of this is happening during what’s been a very strong 18 months for the U.S. and global stock markets, led by big-cap tech companies like Facebook (FB), Amazon (AMZN), Alphabet (GOOGL), Apple (AAPL) and Microsoft (MSFT).

The current market environment is not overly penal toward tech companies. In fact, the opposite is the case. But it does appear that the secret sauce the venture market seemed to have discovered when financial data was closely held and valuations widely touted appears to have been misjudged.

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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland